Treasuries rise

Disappointment that French and German leaders declined to propose a boost to the eurozone bailout fund and said all 17 eurozone countries should commit to balanced finances fed a safe-haven bid for US Treasuries on Tuesday. German Chancellor Angela Merkel and French President Nicolas Sarkozy said they planned closer joint governance of economic policy to deal with the eurozone's debt problems. They did not say they would attempt to sell eurozone bonds.
US stocks slipped, driving a safety bid for bonds, with 30-year Treasury bonds rising more than two points in price and the benchmark 10-year note up nearly a point. The benchmark 10-year US Treasury note yield, which moves in the opposite direction of the price, fell to 2.23 percent. Many analysts think 10-year note yields could fall below 2 percent as the economy slows.
The bid for long-dated Treasuries brought volumes back to levels seen on Friday, but still at just 66 percent of the 10-day moving-average, said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut. Seven-year notes climbed 20/32, their yields falling to 1.52 percent from 1.62 percent late on Monday.
The remarks by Sarkozy and Merkel, who were under pressure to come up with plans to shore up the eurozone and restore financial market confidence, disappointed some expectations. "Clearly, investors did not get the big next step that some had been hoping for," said Otis Smith, director of credit research at Markit in New York.
US Treasuries prices were helped early in the session after Germany reported its economy in the second quarter posted the lowest quarterly growth rate since 2009, fuelling concern about a European economy already weakened by a fiscal crisis. "The German GDP was weak and there were also concerns French GDP forecasts might get downgraded as well," said Jason Rogan, director of US Treasury trading at Guggenheim Capital Markets in New York.
Bonds briefly pared gains after data showed US industrial output in July rose at its fastest pace in seven months. A more sour economic note was the US government's report that single-family housing starts fell 4.9 percent in July for the largest monthly drop since February.